Earlier this year, on appeal from the BVI, the Judicial Committee of the Privy Council (JCPC) handed down its judgment in Sian Participation v Halimeda (Sian), unequivocally stating the English Court of Appeal decision in Salford Estates (No.2) was wrongly decided and is no longer good law. Salford Estates (No.2) was authority to support the grant of a stay of winding-up proceedings where the petitioning creditor and the debtor company had agreed to refer disputes of the debt to arbitration.
In Sian, it was held that a winding-up petition was not a debt enforcement proceeding and therefore there should be no automatic stay granted in favour of arbitration where the debt was not disputed on genuine and substantial grounds. The JCPC was so convinced that Salford Estates was bad law that it gave, for the first time ever, a Willers v Joyce direction that English Courts should no longer follow Salford Estates (No.2) and that its decision in this BVI appeal should be binding on English Courts.
The JCPC considered the role of public policy objectives and was of the view that the presentation of a winding-up petition in no way offends the parties' agreement to arbitrate, as the winding-up petition is not the type of claim caught by the mandatory stay provision in the relevant arbitration legislation: see for example section 5 of the Isle of Man Arbitration Act 1976. Party autonomy is not undermined because seeking a winding-up order is not something which the creditor has promised not to do. By making a winding-up order, the Court is not resolving anything about the debt, nor interfering with the resolution of any dispute about it.
On the face of it, this decision may be seen as ‘anti-arbitration’, but the JCPC clarified how stays can still be available where the debt is disputed on genuine and substantial grounds, which is where arbitration kicks in. Of course, in any event, a debt which is the subject of a genuine and substantial dispute should not be used to support a statutory demand.
The Isle of Man’s Arbitration Act 1976 includes provisions regarding discretionary and mandatory stays in favour of arbitration similar to those found in arbitration legislation in BVI and English law. Consequently, although Sian was an appeal from the BVI Courts to the JCPC (and therefore, strictly speaking, not binding in the Isle of Man), we consider that the Isle of Man Courts will likely follow the decision in Sian.
15 October 2024
